Get access to the funds you need to buy your next business vehicle.
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- Requirements: $100,000+ annual revenue, 1+ years in business, 600+ personal credit score
What is business vehicle financing?
Business vehicle financing refers to several different borrowing options that can help cover the cost of a new car, truck, van or other vehicle for business use. Your options are similar to auto loans, but you might not have the same selection of lenders and could have to meet different application requirements.
Which type of financing works best for your business depends on a range of factors including its financial situation, taxation needs and whether you’ll use the vehicle solely used for business purposes or a mix of business and personal use.
Top business lenders for vehicle financing
How does business vehicle financing work?
Business vehicle financing works a lot like other types of auto loans. If your business doesn’t want to pay for a vehicle upfront, financing kicks in to break up the cost into more manageable payments that you pay over a period of time plus interest or fees.
How commercial vehicle finance works depends on which type of financing you go for. Some options allow you to borrow a vehicle from a dealer without ever owning it. Other options allow you to purchase the vehicle in full.
What are my business vehicle financing options?
Your business has a number of vehicle financing options to choose from, though it’s rare to find a lender that offers all at once. Use the following list to help you decide which is best for your business and start your search from there.
Business auto loan
A business auto loan allows you to buy the vehicle under your name or your business’s name and then pay the lender a fixed monthly repayment. If you take out a loan in your business’s name, your lender might require a personal guarantee from all business owners if your business’s finances aren’t strong enough.
You can get business auto loans from online lenders, banks, credit unions and even directly from the manufacturer or dealership. These loans tend to require a down payment of around 10% to 20%.
Lease
This option allows your business to use of a commercial vehicle without ever owning it. The lender purchases the vehicle on your behalf, and then leases it back to you. You then make monthly lease payments until the term of the lease is up.
Once your lease is over, you typically have the options to pay off the remaining value on the lease and take full ownership of the vehicle, trade the vehicle for a new one in or look to refinance the lease. Business vehicle leases usually don’t come with a down payment.
Commercial line of credit
Need financing for more than one vehicle? Some lenders allow you to use a business line of credit that you can use to buy or lease multiple cars, trucks, vans and more to help you build your fleet.
You’ll only have to get approved once so you won’t have to spend all that time waiting to get approved for each individual vehicle. However, your business will likely need to have strong credit and a consistently high revenue to qualify.
SBA commercial vehicle loan
Having trouble qualifying for traditional vehicle financing. Your business might be eligible for a Small Business Administration (SBA) vehicle loan. These loans are backed by the SBA, meaning that they come with competitive rates and fees. However, they can take a while to process and have extensive eligibility requirements, so it’s not ideal if your business is in a rush.
Heavy-duty vehicle financing
These are designed specifically for large trucks and other heavy-duty vehicles, which you might have difficulty financing with your typical car loan.
Like with the commercial line of credit, your business can use this option to build your fleet but typically requires your business to have been around for at least two years, have strong credit and consistently high revenue.
Specialty vehicle financing
This option is best for businesses looking to modify a vehicle or buy specialty equipment — what you can’t typically get at an auto dealership. Specialty financing can help your business buy equipment to make better use of vehicles your business already owns, like a wheelchair lift, crane or towing equipment. Some lenders allow you to combine this option with a lease or auto loan.
Personal loan
A personal loan gives you access to funds you can use for a variety of purposes, ranging from improving your home to buying a car. This option can be great if you plan to use the car for personal and business use. Treat it as a last resort, however: Personal loans tend to come higher interest rates and fees than some other business vehicle financing options.
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How can I find the best vehicle financing for my business?
- Terms. The length of the term of your vehicle finance arrangement will influence how much money you have to pay in order to gain ownership of a commercial vehicle. Many finance options allow terms of between one and seven years, so compare the terms available and find an option that suits your budget and needs.
- Interest rate. What interest rate will you be charged under your vehicle finance arrangement? The higher the rate, the more you’ll have to pay in interest charges. Will the rate be fixed or variable, offering either the security of knowing what your repayments will be or the chance to take advantage of possible falling rates?
- Repayment options. Look for a vehicle finance option that allows you to tailor repayments to suit your budget. Some offer fixed monthly repayments which provide security, while others may allow you to choose a more flexible repayment schedule.
- Tax requirements. Claiming the expense of buying a vehicle as a tax deduction varies greatly depending on which vehicle finance option you choose. You may also be able to include depreciation deductions depending on the option you choose.
- Fees and charges. As with any financial product, it pays to familiarize yourself with any fees and charges attached to a vehicle finance option. They may not seem like much at first, but these expenses can add up to a lot of money in the long run.
Buying vs. leasing a vehicle for your business
Buying a vehicle means you’ll own it once you’ve paid for it in full. Leasing means you can use it for a fixed amount of time without getting all of the benefits and drawbacks of ownership. Here’s how the two options stack up.
| Buying a vehicle | Leasing a vehicle | |
|---|---|---|
| Typical initial cost | Down payment of around 10% to 20% of vehicle cost. | Security deposit of the first month’s payment. |
| Ownership | Your business owns the car as soon as the paperwork is signed. | Your business can buy the car after your lease is up for a large balloon payment. |
| Tax benefits | Your business can deduct depreciation and mileage expenses from your its taxes. | Your business can deduct mileage from its taxes. |
| Maintenance | Your business is responsible for maintenance costs. | You might be charged a fee if your car needs excessive maintenance once you’re done with it. |
Are there any risks involved with business vehicle financing?
As with any financing option, one of the most important thing to avoid is getting in over your head. Having debts pile up on top of one another can hurt your business, so make sure you can afford a vehicle finance arrangement before you sign up to it.
Another common pitfall is simply not understanding the range of vehicle finance options available and selecting one that doesn’t suit your business’ needs and budget. Enlisting the services of an accountant can help.